In the latest skirmish between two industry mainstays, a group of former Ameriprise advisors who moved to LPL Financial are trying to keep their recruiting dispute out of FINRA arbitration.
Michael Bonevento, the founder of the advisory firm ICG next in Wall Township, New Jersey, filed a petition in federal court in New York on Tuesday questioning Ameriprise's right to pursue claims against him and five other advisors before a Financial Industry Regulatory Authority arbitration panel. Bonevento is among roughly 30 former Ameriprise advisors
Bonevento and his colleagues left Ameriprise in February 2019, moving to LPL with their practice then known as Intellectual Capital Group. Roughly five years later, Ameriprise filed FINRA arbitration claims against LPL and the advisors accusing them of misappropriation of trade secrets, unfair competition, unjust enrichment and breach of contract, among other things.
FINRA is the federally appointed self-regulator of the broker-dealer industry, and its arbitration proceedings are almost always the legally required forum for disputes between brokers and firms. But Bonevento makes several arguments in his petition for why his particular case with Ameriprise shouldn't go before arbitrators.
Bonevento notes that he agreed, about three months after leaving Ameriprise, to pay a $120,000 settlement to pay off promissory notes provided to a pair of advisors he had recruited to his team. (Loans of this sort are usually forgiven if the advisors brought onboard don't change firms for a set number of years.) As part of the settlement, according to Bonevento, he and his colleagues were released from any future claims of misappropriation of trade secrets and similar violations.
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Bonevento also contends that the federal and state statutes of limitation allow plaintiffs only three years to file claims of misappropriated trade secrets.
"The claims are time-barred because Ameriprise was aware that the ICG Advisors were taking the information that their clients entrusted to them over the years when they left Ameriprise to join LPL," according to the petition. Yet Ameriprise "failed to assert its purported claims until more than five years later," it adds.
An Ameriprise spokesperson said, "We take seriously our duty and commitment to ensuring client data is protected, regardless of when the actions took place." The spokesperson added, "LPL systematically uses recruits to collect, retain and provide confidential client information and trade secrets, in direct violation of multiple laws and regulations."
An LPL spokesperson declined to comment.
A history of recruiting-related litigation
Ameriprise has
Ameriprise specifically took exception to LPL's use of its "bulk upload tool" to electronically import clients' Social Security numbers, account numbers, account information, routing numbers, dates of birth, ID numbers and account values, among other data. At least 30 former Ameriprise advisors were accused of using the system for three years, starting in 2018, to transfer information
Ameriprise argued those transfers breached the limits set out by the Broker Protocol — a voluntary industry pact restricting advisors who change firms to take only client names, addresses, phone numbers, email addresses and account titles. Both Ameriprise and LPL belong to the protocol.
LPL has said it ceased using its bulk upload tool with former Ameriprise advisors in 2022. The two firms
In its own court filing on Tuesday, Ameriprise acknowledges its settlement with Bonevento gives him legal protection from various claims related to his move to LPL. But it says this protection depended on his returning confidential client information.
Ameriprise contended Bonevento and other advisors alleged to have used the bulk upload tool were required to fill out a questionnaire listing all the devices they had stored client information on and return it by March 28 of this year. Instead of complying with that deadline, Bonevento filed what Ameriprise deemed a "clearly defective special proceeding" in New York State Court.
The case was moved into U.S. district court last week because it concerns claims related to the Federal Arbitration Act. Ameriprise notes that Bonevento signed various arbitration agreements stipulating that the place to resolve disputes with his broker is before a FINRA panel.
'No emergency,' says Ameriprise
Ameriprise also rejected Bonevento's argument that the ongoing FINRA arbitration constitutes an "emergency" he needs relief from. Ameriprise notes that Bonevento did not take legal action until more than two months after learning he had been added to the claims.
"This is no emergency," Ameriprise argued. "It is solely Plaintiff's misguided effort to create confusion and further delay in the arbitration process."
According to Bonevento's petition, he started his career in 1994 at Ameriprise's predecessor firm IDS Financial Services. Bonevento said he converted his advisory practice into a franchise of Ameriprise in 2000 and that he and his colleagues worked as independent contractors.
Bonevento said in his petition he and his team felt loyal to Ameriprise but that they eventually became concerned that their franchise affiliation would not accommodate "their ability to serve their clients and also to grow and scale their business." Bonevento said he set up meetings with various firm executives, including
Bonevento said he and his team were also receiving recruiting pitches from various other firms. After deciding to depart for LPL, they told Ameriprise of their plans in October 2018.
His petition said they sought to ensure a smooth transition in part by leaving certain client accounts with Ameriprise. Bonevento, according to the petition, relinquished 170 client groups with $57 million in assets and his colleague, managing partner James Costabile, left behind 25 client groups with $4 million in assets.
"Accordingly, the ICG Advisors were fully transparent and, thus, Ameriprise knew exactly which clients they were leaving behind … and which clients they were taking with them to LPL," according to the petition.
